Traditional Marketing
The marketing of goods and services to consumers has always been more art than science, and the science aspect has been rather inexact. The inexactness of the science derives primarily from the fact that vendors are unable to obtain, at least without prohibitive cost, sufficiently accurate information concerning consumer's actual preferences, either individually, or in the aggregate. The vendor's strategy for ascertaining aggregated consumer preference data is, presently, to concentrate on segments of the consumer market, but they are only able to isolate or define these segments at a prohibitively high cost.
The vendor's study of segments of the consumer market allows a vendor to study the behavior of the whole of the market by studying the behavior of each of a number of smaller groups of consumers in the market (market segments) and aggregating the behavior over all of the groups. The key to such segmentation, however, is the selection of the factors used to determine which consumer is in which group. Each factor selected must be related to the predicted behavior in order for the segmentation to be effective.
Generally, the factors the vendor selects to define a market segment are based upon demographic data which is costly to compile. The principal methods of compiling demographic data have been surveys and census data. Because census data is typically derived by extensive survey, the methods are essentially survey-based.
The survey method of obtaining market segment data typically consists of posing a number of questions of two types. The first type of question is for ascertaining the demographics of the surveyed consumer. The second type of question is for ascertaining the consumer's purchasing behavior with regard to the relevant product. Once the survey is complete, the vendor is able to define a proposed segment of the market based upon the consumers' answers to the two types of questions and then validate that segment by testing its response to product offerings. For instance, the vendor's market researchers might study all of the consumers who are male, married, of European ancestry, and in the group from 40 to 45 years of age, in order to determine their motor oil purchasing habits. These purchasing habits are then associated with those demographic factors, are studied for degree of correlation. If the degree of correlation is sufficiently high, a cause and effect relation between the factors and the admitted behavior is presumed.
This presumption is then extrapolated from the survey sample, to the entire demographic. In other words, the survey assumes that behavior of a small group of consumers that the vendor randomly selects and who share a demographic factor is the same as the whole group of consumers sharing that same demographic factor. In practice, these assumptions generally prove to be reliable enough to justify the cost of the survey, but all too often, just barely justified. Knowing, for instance, that most members of a constructed demographic group, (or “market segment”) report the purchase of a particular product will not justify a vendor in presuming the same purchase by each member of that group.
Another method of studying segments of a market is the focus group. In this method, the vendor selects a number of demographic factors to define a group. The vendor then recruits consumer members of this demographic group and presents them with the relevant product. Their reactions to the relevant product are again assumed to be the reactions of the whole of the market segment that share these demographic factors.
Each method relies upon constructing a model of the segment of the marketplace, and from that model extrapolating the behavior of the market. If either the model is flawed or the group's behavior does not accurately reflect the market place, the resulting impressions of the marketplace are misleading.
Even once they have targeted an audience; vendors then must spend a tremendous amount of money to deploy the marketing plan. Specifically, even vendors who are equipped with reliable demographic factors likely to yield a sale, the vendor then must identify and locate which consumers share these demographic factors and thus belong within that segment. For example, if a bicycle manufacturer has learned that 25-45 year old, college educated, white males are more likely to buy mountain bikes costing over $900 than any other market segment, it is not possible to immediately offer such bikes to all those, and only those in that segment, because it is not possible to accurately and precisely identify them. Thus, defining a segment to target is one thing; hitting the target is quite another. A well-known example of this problem is direct mail from vendors to “potential” customers which is so routinely discarded that it is known as “junk mail. For the foregoing reasons, while current marketing does work, and products are sold, the process is extremely inefficient.
Most in marketing would admit to the existence of a sort of “Uncertainty Principle;” that the very act of observation will shift the outcome. Even when queried for information about their spending habits, consumers may consciously or subconsciously report information they believe the surveyor wishes to hear or information that makes them appear more appealing than would their purely truthful answers. For instance, few consumers would readily admit to purchasing large quantities of fatty foods. Yet, actual sales studies suggest otherwise. Even more importantly, most consumers believe they have certain preferences or spending habits but they are simply honestly mistaken. This kind of mistake is prevalent with recurring, but small and variable expenses such as groceries and phone charges.
Another problem with traditional market research is that the information gathered has a limited shelf life. Consumers often present a moving target to vendors. What is in vogue one day may well evaporate the next. Thus, even if consumers could perfectly self-report in a vendor's study, the results of that study provide only a “snapshot” valid only at the moment taken. Therefore, even the time required to compile the results of such a snapshot tends to diminish its value.
If the uncertainty in targeting a potential consumer could be eliminated by better knowledge of each consumer's actual buying habits, the known marketing techniques of market segmentation would assure more successful marketing. Rather than conducting surveys, or trying to guess the buying patterns of consumers or to trust their responses to surveys, vendors require a “window” into the actual buying habits of their market. In a well-observed market, such a window would be both accurate and dynamic thereby overcoming the principal shortcomings of current market study.
In summary, the principal short comings of market segmentation studies as currently practiced generally arise from three fundamental defects: 1) the approximation of the whole by smaller defined groups, sometimes referred to as sampling or extrapolation error; 2) lag time; and 3) the definition of the group and its behavior based solely upon the consumer's self reporting. Due to inconsistencies in and unreliability of self-reporting, the data is less scientific than that allowed by other “direct observation” disciplines. These fundamental problems are part of what the present invention solves.
Intermediary Marketing
What has been lacking is a promontory from which to view actual, objective, nearly contemporaneous, individual consumer purchase activity. If the actual purchasing practices and transactions of their actual and potential customers were known to vendors, vendors would be able to more accurately ascertaining segment or segments of the market to which the vendor's products would appeal, and to target their offers precisely to that segment. The buying habits and actual transaction data of all potential customer segments are nowhere comprehensively, aggregated or compiled in an accessible form, by either consumers or vendors. And, because individual vendors are generally unwilling and unable (due to differences in compiling such data and other reasons) to share what data they have as to the behavior of particular consumers, a more precise study is not likely to arise from vendor records.
Because neither end of the sale/purchase transaction will serve as a source of reliable market information, the answer must rest in the middle, i.e. with an intermediary. The only place to interpose such an intermediary is between the unreliable reporting of consumers and unavailable and incomplete data compiled by vendors. Between vendors and consumers there exists a well spring of purchase information contained in consumer bills.
The vast majority of consumer purchases leave a “paper trail” reflecting the exchange of goods or services for money. While cash sales do exist, the predominant method of purchase is, of necessity, some form of billing relationship. Especially in the fields of periodically purchased products such as telephone services or insurance, the billing component of the relationship tells a great deal about the actual purchasing habits of the customer.
Consider the traditional bill-paying model. Periodically, generally monthly, a consumer will pay bills to various utilities, vendors, credit card companies, and, perhaps, a mortgage holder. These payments are in response to bills mailed to the consumer. In this series of transactions, there exists a great deal of information that would be invaluable to the various vendors as to the consumer's preferences, and more importantly, willingness to spend money for various features and unwillingness to do so for others.
Should an intermediary be placed between the customer and the vendors when the vendors distribute their bills, the customer purchases of goods and services could be carefully tracked and stored for further analysis. As consumers are typically creatures of habit, what they do with their funds one month (at least in terms of categories of recurring expenses) they will likely do the next month and the next month.
The instant invention relates to the utilization of an intermediary between the consumer and the vendors to “read” the consumers' bills. An advantage of such an intermediary is that all of the consumers' transactions are “seen” by the intermediary. These transactions, whether by direct billing or by credit card, accurately and objectively convey the purchase habits of the consumers. The actual executed transactions by consumers reveal objective, and thus very valuable information about consumers, both individually, and in the aggregate.
If, either by means of electronic transfers of funds to pay monthly bills or by cataloguing the contents of bills, the intermediary would have access to the consumer's purchase patterns and habits data, and if that data were analyzed, vendors would be able to target their marketing much more effectively. Specifically, vendors' market segmentation would be derived from actual transaction data rather than subjective preferences prone to sampling and perception error. Vendors would be able to more precisely and accurately segment the market. In this way, consumers would be presented offers and terms with a much higher probability of being acceptable. Overall, the marketing goods and services with consumers would be more efficient.
Moreover, in the present invention, purchase habit information derived from transaction data can then be correlated with those same consumers' demographic information. Such demographic information can be obtained directly from the consumer, by traditional methods, or, to a limited but substantial extent, derived from the transaction data itself.
Regardless of how the demographic data is obtained, it is correlated against actual, objective transaction data. Thus, at its heart, the invention enables vendors to know exactly who, in terms of demographics, is buying what, and on what terms. Equipped with this knowledge, the vendors can sell and the purchasers buy goods taking advantage of the lower prices that result from increased efficiency in the process.
The efficiencies and advantages are not only for the benefit of the vendors, but also for the benefit of consumers. Specifically, as the marketing process becomes more accurate and precise in targeting willing consumers via the present invention, consumers in turn will tend to receive only those offers which have a high likelihood of meeting their needs. Hence, there will be less “junk mail,” in whatever medium. Second, as mentioned, prices will be lower. Third, transaction “search” costs (that is, the time and hassle involved in “shopping” for more appropriate offers) will be substantially reduced. Fourth, the invention will permit the vendors to offer goods and services upon terms which, due to the described inefficiencies, were previously not available on the market at all. Put differently, the process known in economics as “price searching” will be simultaneously less expensive and more accurate, enabling vendors to create offers hitherto unavailable. Fifth, the present invention effects these advantages without involving more work for the consumers. Consumers simply must pay their bills as per usual, and that very process becomes the primary source of the raw data from which the present invention derives its improved information, and consequent efficiencies. Sixth, the invention ultimately reduces consumers' expenses, not only by reducing prices, but by making it more likely that the consumer is purchasing those combinations of goods and services and terms which are most appropriate, that is, most closely track, that consumers' demands.
In effect, the invention eliminates, or at least reduces, paying for goods or services that the consumers neither want nor need, but have hitherto been required to purchase as part of a package with goods and services the consumer does want and/or need.
The banking industry has presented one example of a limited intermediary. Consumers, as taught in Motoyama, U.S. Pat. No. 5,913,202, purchase mortgages and investment instruments from a plurality of banks. In order to interact with the intermediary, the consumer must register and in the act of registering, provide the intermediary with information as to subjective preferences in banking services and in financial products. A banking intermediary, which acts as a clearinghouse for these services or financial products, compiles offers that meet the consumers stated preferences and presents them to the consumer.
Motoyama falls short of the advantages of the instant invention. First, the products and services the Motoyama invention presents to the consumer are selected on the basis of easily distinguishable attributes. For instance, interest rates, term, principal, etc., on loan instruments are numerically described attributes and hence easily categorized and compared. Throughout practice, the invention gains no greater insight into the consumer than the consumer himself was willing or able to describe in enrolling. Motoyama also fails to teach collecting information from one's household bills and using that information to find the most suitable product or offer terms. The instant invention is distinct from Motoyama in that the instant invention matches customers to products by utilizing and analyzing the consumer's own purchase history.
Peckover, U.S. Pat. No. 6,119,101, also recognizes the potential of a system of matching consumers with vendors. Specifically, Peckover teaches a system for electronic commerce having personal agents (computer programs with the ability to perform tasks) that represent consumers and providers in a virtual marketplace, such as is presented on the Internet. The consumer sends the specifications of the product desired out into the virtual marketplace. These consumer personal agents create decision agents that shop for products and return the results to the consumer. The consumer software agent works as a sophisticated search engine that further assists consumers in comparing and ranking the found products. Among the shortcomings of Peckover is its inability of deriving and/or validating the consumers' preferences from their purchase history.
In contrast, the instant invention allows far greater precision in both the search for and in the recording of the purchasing of goods. The instant invention has the ability to create a complete marketplace and in doing so, catalogues and describes with a precision that is not available with the system of agents Peckover describes. With each purchase, the customer of the instant invention reveals more of his likes and dislikes. The Peckover invention has no ability to deduce and/or project the needs of the customer from the customers actual transactions.
Instead, Peckover relies only on the history of customers' searches. By tracking and reviewing customers' search history, the Peckover invention is able to inform vendors of the wants of consumers. Because it is neither comprehensive, i.e. contains all of consumer's purchase patterns, nor does it catalogue the terms of the purchases, there is little data to extend the information beyond that garnered by following a shopper as that shopper window shops. The instant invention, on the other hand, learns about the customer's likes and dislikes by watching all of the purchase decisions, and the terms of the actual transactions. Furthermore, unlike Peckover, the instant invention actively compiles demographic information about the customer and constantly correlates it against the pattern of purchases contained in its customer database. Because each of these purchases is defined by the identity of the product purchased, tiny distinctions between competing and virtually identical products reveal the customer's likes and dislikes right down to “label affinity.” After compiling such data and examining that data in light of the customer demographics, the instant invention can predict behavior for groups of consumers.